Does Credit Market Intervention Enhance Economic Outcome? Evidence from India's 'Priority Sector Lending' Policy

Credit market intervention has been a matter of intense debate, resulting in a substantial literature on the issue of whether credit market interventions are economically useful. While the proponents argue that such interventions are necessary, given that credit markets are laden with information as...

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Bibliographic Details
Published inReview of development finance Vol. 11; no. 1; pp. 46 - 65
Main Authors Yadav, Vinay Kumar, Sarma, Mandira
Format Journal Article
LanguageEnglish
Published Amsterdam AfricaGrowth Institute 01.06.2021
Subjects
Asymmetric information
Bond markets
Credit
Credit market intervention
Development
Directed credit
Distortion
economic growth
finance
Intensive treatment
Intervention
Priority sector lending
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Summary:Credit market intervention has been a matter of intense debate, resulting in a substantial literature on the issue of whether credit market interventions are economically useful. While the proponents argue that such interventions are necessary, given that credit markets are laden with information asymmetry, the opponents argue that such interventions are not without costs and may lead to distortion in the economy. In this paper, we empirically address the question on whether India's longstanding credit market intervention policy, viz., priority sector lending policy has had any impact on the overall economic outcome of Indian States. Our results seem to provide some evidence that this particular credit market intervention policy has been beneficial to the Indian economy.
ISSN:1879-9337
1879-9337
DOI:10.10520/ejc-rdfin-v11-n1-a4